On the 10th anniversary of the Financial Services Compensation Scheme (FSCS), the FSA is to require banks and building societies to display clearer details of how much money is covered in each account they hold.
Public awareness of FSCS protection
Although savers have been covered by the FSCS for a decade, many remain unclear about how compensation limits apply. Which? research earlier this year found that some bank staff remain equally mystified. The amount of compensation offered on savings was increased from £50,000 to £85,000 in December 2010. This applies to the total amount held by individual customers in a singled licensed institution. Joint accounts receive protection up to £170,000. Different compensation limits apply to investments.
The Financial Services Authority (FSA) is now planning to make it obligatory for all banks, building societies and credit unions in the UK to prominently display how much compensation savers could claim in the event of an institution failing and where they would get their money from. This information will be shown in every branch and on all bank websites.
Consumers must have confidence in banking system
Hector Sants, chief executive of the FSA, said: ‘It is vitally important that customers have confidence in the banking system and that is why we are taking this step of making it obligatory for firms to prominently display compensation information. Consumers must understand how their money is protected and be clear about the limits – any money over £85,000 in a deposit account is not protected by the scheme and is at risk.’
As the FSCS marked its 10th anniversary, chief executive Mark Neale said: ‘We have paid out compensation to people who had nowhere else to turn. Far greater protection now exists than was available in 2001. Consumers should feel reassured that in these tough times the FSCS will continue to be there for them. But it is vital that people check their money is with an Financial Services Authority-authorised institution to qualify for FSCS protection.’
Continuing confusion over FSCS cover levels
Unfortunately, the rules governing the FSCS compensation are far from simple. Not all bank brands are individually licensed institutions as some, such as First Direct and HSBC, share a licence between them. This has the effect of potentially reducing customers’ cover because accounts with those banking group are only covered up to £85,000 between the different brands, rather than individually. Confusingly, RBS and NatWest, which are both part of the same group do have separate licences, while the Co-operative bank and Smile do not.
Which? personal finance expert, Ian Robinson says: ‘FSCS cover is a vital protection for savers in an age of uncertainty, but it’s sensible to check exactly how your money is covered and whether you might be better off spreading it across several different institutions rather than keeping it all in one place. The FSA initiative is welcome, but there remains much to do. Ideally, Which? would like to see full FSCS cover for each separate brand and a requirement that all products should have a label clearly displaying the extent of FSCS cover applicable to them.’